LPC-Bankers work on US$70bn debt for Altice Charter tie-up

LONDON, Sept 6 (Reuters) - Bankers are working on debt financings of around US$70bn backing a potential offer by Netherlands-based telecom conglomerate Altice NV and its US cable unit for US cable operator Charter Communications Inc, banking sources said on Wednesday.

A debt deal would be one of the largest acquisition financing packages to date and one of the largest leveraged acquisition financings, the sources said.

“Even on a conservative level, the debt backing Altice’s Charter bid would be the largest-ever leveraged financing,” a senior banker said.

Altice’s founder, Franco-Israeli billionaire Patrick Drahi is studying a bid for Charter Communications, which is worth more than US$180bn, Thomson Reuters reported last month.

Drahi made his fortune through debt-fuelled acquisitions swiftly followed by cost cutting to boost profits and a deal for Charter would enable Drahi to bring his business model to the United States.

Altice NV and Altice USA have almost as much debt as their combined market capitalisations, at €32bn and US$23bn, respectively.

Bankers are unwilling to risk missing out on a deal of this size and are actively pitching financing proposals to Altice to back any potential bid, bankers said.

“The financing would be sizeable so every big bank is around it in some shape or form - all the guys that have led Altice deals in the past,” a second senior banker said.

“Any bank with any appetite will be in there pitching. No one wants to miss out on the trade,” a third senior banker said.

The deal would be the largest financing to date for Altice, which has skilfully raised billions of dollars of leveraged loans and high-yield bonds to finance its growth by acquisition.

Altice purchased rival French mobile telecommunications firm SFR in 2014, which was financed with US$21.9bn-equivalent in debt. At that time, it included the largest high-yield bond issue ever as well as Europe’s largest-ever covenant-lite loan.

The largest syndicated loan ever agreed was global brewer AB InBev’s US$75bn loan that backed its acquisition of SABMiller in 2015, followed by Verizon Communications’ US$61bn loan in 2013 backing its US$130bn acquisition of the 45% stake in Verizon Wireless that it didn’t already own from Vodafone .

JUMBO STRUCTURE

The financing proposals for Altice’s potential bid for Charter include secured and unsecured high-yield bonds and loans and could also include some euro-denominated paper to maximise liquidity.

Banks are proposing a range of structures including investment grade and sub-investment grade, in a bid to capture both bank and fund liquidity.

“A financing of this magnitude would require tapping into every market to raise the funds and get pricing tension. They would need to have a foot in dollars and euros, bonds and loans to take advantage of technicals at any point,” the second senior banker said.

The lower levered investment grade secured piece would be rated around two notches higher at double B than higher-yielding bonds. The loans would sit at a senior level, the sources said.

A hybrid blend of investment and sub-investment grade financing have been used to finance cable companies previously including Liberty Global-owned British-based broadband provider Virgin Media, Dutch telecoms company VodafoneZiggo and even Charter Communications, one of the sources said.

Around US$70bn of debt works out at 5.0 times the combined company’s approximate US$12.4bn Ebitda, after taking synergies into account, the sources said.

This falls within the US leveraged lending guidelines, which raises red flags when deals are levered over 6.0 times.

Charter has an approximate Ebitda of US$10bn, while Altice USA’s Ebitda is around US$2.4bn, the sources said.

Other banks could consider adding more leverage, which could boost the size of the overall debt financing. Other banks are also looking into deeply subordinated debt instruments that resemble equity.

Whatever the structure, a jumbo financing of this size would test the depth of liquidity in the loan and bond markets, sources said.

“Conventional wisdom says you can’t do this in the debt markets as it will be too big,” a fourth senior banker said.

In 2014, the strategy of playing loans off against bonds and tapping both the dollar and euro market for Altice’s SFR buy worked better than anyone expected, and the bonds received US$100bn of orders. (Editing by Tessa Walsh)